Benita Ferrero Waldner speaks in the European parliament about the Gaza crisis. Photograph: Christophe Karaba/EPA

European plans to turn Israel into a "privileged" partner enjoying special political, diplomatic and trade links were frozen by Brussels today in protest at the Israeli onslaught in Gaza.

Senior officials and diplomats in Brussels also said Czech pressure to stage a Europe-Israel summit to launch a new "special relationship" was facing stiff resistance and would probably not take place.

Senior figures in Brussels said the European move was ordered by Benita Ferrero-Waldner, the commissioner for external relations, who instructed various departments of the European commission to suspend implementation of a policy decided last year "to upgrade" relations between Israel and the EU.

"Senior people are saying there should be a pause in close ties between Israel and the union," said a European diplomat.

"The commission has frozen contacts with the Israelis on practical aspects of the upgrade," another diplomat said.

Commission officials denied that the decision amounted to sanctions against Israel. "There's been no talk of sanctions. We're very focused on the Egyptian [ceasefire] plan," said a senior official.

The EU and the Israeli government agreed last summer on the new policy giving Tel Aviv a privileged partnership with Europe, entailing greater integration into Europe's single market.

Ramiro Cibrian-Uzal, the EU commission's ambassador to Israel, told reporters in Jerusalem today that the war in Gaza meant bilateral relations between Israel and the 27-nation bloc "cannot proceed business as usual".

He said: "In a war situation, in a situation in which Israel is at war, using its war means in a very dramatic way, in a powerful way in Gaza, everybody realises that it is not the appropriate time to upgrade bilateral relations."

The decision to suspend implementation comes as a blow to the Israeli foreign minister, Tzipi Livni, a month before she faces the rightwing hawk Benjamin Netanyahu in a general election.

The new European policy was in part designed to help Livni win the election and late last year she had two "tempestuous" meetings with Bernard Kouchner, the French foreign minister, demanding quicker European action to boost her poll chances. EU foreign ministers responded with a decision to push ahead with the policy.

While the practical impact of the freeze may be minimal, officials said, the political and symbolic signals are strong, controversial and unusual.

"It wouldn't surprise me if people like Fererro-Waldner were working not on an upgrade, but on a downgrade," said a third diplomat in Brussels.

The protest move has been orchestrated by the commission which, at a meeting in Strasbourg yesterday, agreed that "people should stay away from Israel", said another source.

The decision is likely to run into strong criticism among governments of the 27 member states. The Czech Republic assumed the EU presidency at the beginning of the year with a robust pro-Israeli campaign in mind. "The Czech presidency is seen to be very keen to take an American line on this," said the source.

The Czechs have been seeking to organise a European summit with Israel in May or June in Prague to mark the launch of the new deal.

"They want a highly symbolic summit to demonstrate the EU's partnership with Israel as particularly privileged," said one of the diplomats. "It's all off for the moment; particularly inappropriate. It would be tremendously divisive."

British diplomats neither supported nor opposed the commission move, saying only that the priority was to secure a ceasefire in Gaza.